In the first two months of 2011 groups associated with a coalition opposing the implementation of new rules for debit “interchange” fees that banks charge to businesses had already contributed over $500,000 in political action committee money to dozens of lawmakers, including backers of a bill that would delay the rules from going into effect.
The Electronic Payments Coalition is opposing a new rule proposed by the Federal Reserve as part of the Dodd-Frank financial reform bill that would cap debit “interchange” fees at 12 cents per transaction. This amounts to a more than seventy percent reduction in cost per transaction.
Interchange fees have become an increasing profit center for banks and credit network companies. In the past, credit networks like Visa and MasterCard have set the fees, while the banks issuing cards reaped the profits, which topped $45 billion in recent years. Electronic network operators like Visa and MasterCard gain business by setting higher fees, which then entice banks to issue more cards on their respective networks so that banks can profit from the fees.
It is no surprise then that the coalition opposing limits on interchange fees consists of the network providers, the biggest banks, and their trade groups. Credit unions and smaller community banks have also joined the coalition. These smaller, more locally focused banks fear that the rule may affect their much smaller profits and benefit the bigger banks that can weather a haircut over interchange fees. This is despite the fact that the rule applies only to fees paid to banks with profits of $10 billion or more.
The majority of the PAC contributions flowing to lawmakers in the early months of 2011 have come from the trade companies associated with the credit unions and community bankers. The Credit Union National Association (CUNA) contributed $146,500 and the Independent Community Bankers Association (ICBA) contributed $163,500 to lawmakers. This accounts for more than half of all the PAC contributions to lawmakers.
The Huffington Post’s Zach Carter explained that the ICBA has a direct stake in the interchange fee rules as the trade group issues its own debit card and rakes in profits from the interchange fees charged to merchants.
In March Sen. Jon Tester, D-Mont., introduced the Debit Interchange Fee Study Act, a bill to delay the implementation of the new rules for one year while the Fed conducts a further study of their impact. In the two months preceding the introduction of the bill Tester received $9,500 in PAC contributions from five of the twenty biggest members of the coalition. Tester is the fourth highest recipient of Electronic Payments Coalition PAC money among senators.
Sen. Tom Carper, D-Del., is the top recipient of money from top coalition members in the Senate. Carper, an original cosponsor of Tester’s bill, received $13,000 over January and February. Carper is known as a bank friendly Democrat as his home state of Delaware is home to many banks taking advantage of the state’s low tax rates.
Rep. Shelley Moore Capito, R-W. Va., introduced an identical bill in the House of Representatives. Capito, the Chair of the Subcommittee on Financial Institutions and Consumer Credit, received $5,000 from coalition members in the first two months of the year. The top recipient of PAC money from coalition members was House Financial Services Committee Chairman Spencer Bachus, R-Ala. Bachus, an opponent of the Dodd-Frank law, received $71,000 in contributions from coalition members in January and February. Bachus explained his opposition to the fee rules in a letter to Federal Reserve Chairman Ben Bernanke, "Hastily written rules may end up doing more harm than good to consumers and have negative effects on competition in the marketplace." A previous Sunlight Foundation report showed that Bachus received more than sixty percent of his campaign contributions from the finance, insurance, and real estate sector.
The other top recipients include party leaders like Speaker John Boehner, Majority Leader Eric Cantor, and Majority Whip Kevin McCarthy; key committee members such as, Ways & Means Committee Chairman Dave Camp and Financial Services Committee members Patrick McHenry and Steve Stivers.
Already in 2011 coalition members are increasing their lobbying presence as the campaign against the debit fee rules ramps up. The major coalition partners hired twenty-four lobbying firms in 2010 that listed lobbying on the interchange fee rule in their disclosure forms. Eighteen of those firms were registered with the two major credit network companies, MasterCard and Visa.
These firms include some of the biggest in Washington including Akin Gump, Ogilvy Government Relations, Quinn Gillespie, Sidley Austin, and Williams and Jensen.
Sixty-eight of the seventy-nine lobbyists for these eighteen firms registered with Visa or MasterCard previously worked in government, according to data obtained from the Center for Responsive Politics.
Former Reps. Dick Gephardt, Donald Sundquist, and Robert Walker are all registered with Visa. MasterCard retains the law firm of Clark Lytle & Geduldig, which is also registered to lobby for the Electronic Payments Association, the American Bankers Association, and the Financial Services Roundtable. One of the firm’s partners, Sam Geduldig, is a former senior staffer on the House Financial Services Committee.
The Federal Reserve stated recently that it will fail to meet the April 21 deadline to issue the new rules due to the 11,000 comments from the public on the rules.